Why BBMP is caught in a vicious cycle of low municipal revenue

Currently, BBMP’s per capita revenue is well below the norms set by the High Powered Expert Committee for urban development.

The Bruhat Bengaluru Mahanagara Palike (BBMP) is currently facing huge losses in property tax revenue due to a technical glitch in its zonal classification. It is estimated that at least 70,000 citizens have underpaid their property taxes from 2016-2017, the time of implementation of new zones under the Self Assessment Scheme of Property Tax assessment. This glitch in assessment has caused a loss of Rs 240 crores in the past five years for the financially struggling BBMP.

Low revenue from property taxes

BBMP revenue collection from property tax is Rs 2,400 crores against an estimated demand of approximately Rs 4,000 crores. The average collection efficiency stands at about 60% and has been stagnant for the past three years. The per capita revenue from property tax stands at Rs 1,567, which is much lower than that of Mumbai at Rs 5,458 and Delhi at Rs 3,843 (computed from respective budget books).

The Economic Survey of 2016-17 estimated that Bengaluru is currently realising between 25%-40% of its revenue potential from property taxes. The reasons for low revenue from property taxes and other sources across Indian cities points towards the unwillingness of citizens to pay, weak institutional structures to support higher revenue collection and lack of political will, among other factors. All of which is indicative of the poor state of fiscal decentralisation in India’s local government structure.

Currently, BBMP’s per capita revenue (income from own sources of revenue per individual) stands at Rs 3,300. This is well below the norms set by the High Powered Expert Committee for urban development, which puts the per capita expenditure required (expenditure per individual to provide minimum standard of basic services) at Rs 5,500 annually. It is evident that the expenditure requirements for providing the basic services are far more than revenue income.

Read more: How does BBMP compute Property Tax

Citizens dissatisfied with public service delivery

BBMP is struggling to meet the basic expenditure norms and this has an obvious impact on quality of services, which impacts the citizen’s willingness to pay for services. The lack of willingness to pay among citizens impacts the revenue collection perpetuating the vicious cycle of low revenue and worsening quality of services.

For instance, Bengaluru’s per capita water supply stands at 100 lpcd (liters per capita per day), far below the normative standard of 150 lpcd. About 60% of households have BWSSB water supply while nearly 40% of households are completely dependent on tanker water and ground water.

In a recent citizen survey by B.PAC (Bangalore Political Action Committee), a prominent citizen action and advocacy organisation, nearly 57% residents said they are dissatisfied by the current state of public service delivery. Citizens also rated the conditions of the city’s roads and the time spent in traffic as unsatisfactory.

Research indicates that there is a positive correlation between satisfaction level among citizens and their willingness to pay for services. Thus, to ensure higher revenues from property taxes, enhancing quality of services would be the most important. However, improving service delivery seems unfeasible given the extent of under-spending on services owing to poor revenue income.

Coming back to property taxes, the highest source of revenue for any city government, Bengaluru is currently using the Self Assessment Scheme (SAS) method. The SAS method is based on the unit area value (UAV), where the city is divided into six zones, based on guidance values notified by the stamps and registration department.

The outside of the BBMP building in Bengaluru
BBMP’s revenue potential from property taxes is low. Pic courtesy: BBMP

For each of the zones, rental rates per square for area is determined by the location, type of construction, built- up area, and the age of the building. It is estimated that a shift in the assessment method to the capital valuation method (where the capital value of the property is determined by the stamp duty ready reckoner) as is used in Mumbai, the BBMP can yield an estimated 40% higher income per property.

Read more: Don’t spend more than you actually earn, new Act teaches BBMP fiscal discipline

Ways to increase revenue collection

BBMP had taken several steps in the past to enhance revenue collection. It had launched an ambitious GEPTIS (GIS Enabled Property Tax Information System) project that would massively enhance the tax base of the city. However, it has not been able streamline the property database, resulting in the system not yielding the anticipated results.

Bengaluru is presently caught in a vicious cycle, where low municipal revenue is leading to low expenditure on basic services. This low expenditure is the cause of poor quality of services further leading to unwillingness among citizens to pay, thus further perpetuating low revenue cycle.

BBMP can take several steps to break out of this vicious cycle, some of these are discussed in the table below. These steps are vital to ensure revenue enhancement leading to better service delivery.

Enhance Property Tax RevenueInclude exempted and non paying property tax in the ambit of taxable properties
Asset monetisationLeasing commercial properties, parks and markets
Fees and chargesLocal body taxes, electricity cess
Revenue sharingShare of GST to local bodies

Innovative solutions to enhance revenue

BBMP can surely learn from several Indian and international cities that have taken innovative approaches to enhance its revenue. One such approach is the selling of transferable development rights pioneered in New York. A method wherein developers can purchase the development rights of certain parcels within a designated “sending district” and transfer the rights to another “receiving district”. Presently, this method is being used in Mumbai, Hyderabad, Ahmedabad, and several other cities in India.

BBMP can also learn from Indian and western cities like Hyderabad, New South Wales (Australia) and Bogota (Columbia) and apply betterment taxes and charges when the price of a particular property increases due to infrastructural development.

Renowned expert on municipal finance, Dr Ravikant Joshi says that it is imperative for city governments to break out of their low equilibrium trap. He points out the need to create a positive cycle of increasing municipal income, leading to higher investments, improved quality of services, increased willingness to pay and higher taxes.

Dr PK Mohanty IAS (Retd), advisor at the National Institute of Urban Management, in his book Financing Indian Cities, says that the crippling infrastructure deficits in our urban areas due to poor expenditure on services not only cause hardships, but can threaten India’s economic growth itself.

Thus, for the BBMP to be able improve its services, ensure growth, and an overall superior quality of life among its citizens, measures need to be taken to enhance municipal revenue. While the goal of financial stability may seem far, small yet impactful steps can go long way in ensuring the same.

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